3 Types of Retirement Village Contracts Explained

If you’ve started looking into buying a home in a retirement community, you’ve probably noticed that there are a number of different contracts that are offered, and each contract has important legal and financial obligations attached to it.

The two types of contracts you are likely to come across in retirement villages are strata title and leasehold. Both of these can see you paying a lot of money in ongoing fees on top of the purchase price, plus you may also need to pay a substantial exit fee when you sell.

In some retirement lifestyle communities, you have another option – a rental agreement. This type of contract can see you avoid a lot of the costly fees that are attached to both strata title and leasehold contracts.

So how do you make the right choice? It’s important that you understand the differences between each, so you can choose the contract that is best for you.

Strata Title

This is a common contract offered by retirement villages that are run for profit. When you buy a house or unit under this type of agreement you’ll pay an agreed purchase price directly to the owner. With a strata title contract you’ll occupy the unit and be a member of the owner’s corporation, which means that you’ll need to be approved as a resident by the retirement village operator and sign a management contract direct with them too.

A strata title contract means that you’ll be registered as the owner of the unit – but as part of the contract you’ll also need to pay the owner’s corporation fees while you own it. If the unit is new and you’re the first owner you’ll also need to pay GST, plus in most cases you’ll also pay a monthly or quarterly maintenance charge.

When it comes time to sell your unit you may also have to pay the operator a share of the capital gains, plus, deferred management or exit fees – and this can take away a large proportion of your sale profits.

Leasehold

Another common contract in retirement villages is a long-term lease or licence agreement. This type of contract requires you to pay an ongoing contribution which gives you a lease to live in the village. Generally, on this type of contract you’ll also need to pay a monthly or quarterly maintenance charge, which can add up to a lot of money every year.

In addition to this, depending on your contract you may also need to pay the village operators substantial fees when you sell your unit, including a share of capital gains and deferred management, departure or exit fees. Consider this carefully, as it can cost you big time when it comes time to sell.

Rental

There is another choice when it comes to your retirement lifestyle – and this one won’t cost you an arm and a leg in maintenance fees and exit fees. If you choose to purchase a home in retirement lifestyle community that operates under the Residential Tenancies Act, you will own your home and pay a rental on the land which your house is situated.

Village Lifestyle Park operates under a rental contract and unlike many retirement villages they do not charge an administration fee, municipal rates or water rates, which saves you a lot of money every year. Even more importantly they don’t charge any departure, exit or deferred management fees – and this makes a huge difference to the amount that ends up in your pocket when you sell.

The Bottom Line

As with any contract you enter into, you should never sign until you fully understand the commitment you are making. Retirement village contracts can be especially complex, and it’s definitely worth seeking specialised legal advice before you commit to buy.

The cost involved can go way beyond simply the purchase price – the ongoing fees and exit fees can be devastating if they’re not expected. To avoid stress, be sure to consider your options and choose the contract that’s best for you – both now and in the future.